ISS has published its global benchmark research policy updates for 2020, which will take effect on Feb. 1, 2020. The changes have been largely communicated to the market through the survey and the comment period. For the US, the following changes are noted:
• ISS is codifying votes against the chair of the nominating committee at Russell 3000 companies if there are no women on the board (unless the board puts a statement in the proxy that a woman will be appointed before the next annual meeting, or there was a woman on the board at the last annual meeting).
• A bifurcation of the policy for newly public companies. There are now two policies, one to address governance concerns (going public with a classified board or with supermajority requirements) and one for multi-class share structures.
• Restrictions on shareholders’ ability to submit a proposal: ISS will continue to vote against governance committees at companies that have any proposal submission threshold higher than the SEC limits of $2,000 for one year. ISS had previously appeared willing to respect some restrictions that had been approved by a shareholder vote or if the company provided clear disclosure on their shareholder engagements on this topic. The policy comes as the SEC has proposed to increase the ownership requirements in order to submit a shareholder proposal.
• Independent Chair Proposals: Incorporates poor responsiveness to shareholder concerns and risk oversight failures into the analysis. ISS will generally, but not always, favor a proposal to separate the roles of CEO and Chair, or to establish an independent chair.
• Generally support share repurchase programs if they are open market.
• An evergreen provision in an equity plan will drive an automatic vote against an equity proposal.
• Support shareholder proposals calling for a gender pay gap report. The policy now explicitly calls for the inclusion of racial and ethnicity information in such reports.
Notably, the policy document does not highlight how EVA will be utilized within policy. Subscribers have noted that ISS intends to continue to roll it out for 2020, but it is not clear what effects it could have on vote recommendations.